IEEJ: October 2014. All rights reserved.

The 417th Forum on Research Works, 22 October 2014
The Institute of Energy Economics, Japan (IEEJ)

Asia / World Energy Outlook 2014
— Analysis of low-growth scenarios for China and India
and the climate change issue —Summary

1. Energy demand and supply outlook up to 2040
Global energy consumption grows by 1.4 times during the next 28 years. Asia
becomes the centre of the growth.
In the Reference Scenario, in which energy supply and demand situations are expected tocontinue their present trends, world primary energy consumption increases 1.4 times from
13,371 million tons of oil equivalent (Mtoe) in 2012 to 19,276 Mtoe by the year 2040. Asia
accounts for the largest share (60%) of the increase in consumption. Fossil fuel (oil, coal andnatural gas) accounts for 70% of the increase in primary energy consumption. The world
will continue to be heavily dependent on fossil fuels, even in the future.

Consumption in Asia will reach 3,526 Mtoe by 2040, representing 60% of the world’sincrease. The increase for China and India alone represents 74% of the Asian increase and46% of the entire world’s increase. The combined increase of these two countries leads theworld’s demand increase.

Oil consumption was 88.6 million barrels per day (Mb/d) in 2012. By mid-2020s,consumption will exceed 100 Mb/d, reaching 116.5 Mb/d in 2040. The overall increase of
27.9 Mb/d is equivalent to more than 90% of the current OPEC crude oil production. In
order to meet such demand increase, expansion of supply including the development ofconventional and non-conventional resources remains a challenge.

Natural gas production and consumption will increase faster than any other forms ofenergy. By 2040, it will replace coal as the second most important source of energy, second
only to oil. Natural gas demand will increase 1.7 times between 2012 and 2040, increasingfrom 3.44 trillion cubic metres (Tcm) to 5.88 Tcm. Demand for liquefied natural gas (LNG)
will more than double during the same period, increasing from 237 million tons (0.32 Tcm)
to 548 Mt (0.74 Tcm).

IEEJ: October 2014. All rights reserved.

Figure 1 World primary energy consumption (by region)10,000

Increase (2012-2040)

Million tons of oil equivalent

Mtoe

8,794

World
9,0002012↓
2040

Asia

19.3 bil. toe

7,000(1.4-foldincrease)

6,000

5,268

5,000

2,000

3,000

Annual Average
4,000 Growth rate
（2012-2040）
3,526

655

2.1%

Africa539

2.0%

Middle East

460

1.8%

233

OECD Europe

134

FSU & Non-OECD EuropeLatin America
Africa North America

114

North America

3,000

1.8%

Latin
America

FSU & Non-OECD
Europe4,0000.6%0.3%

OECD Europe

2,000
1,0000.2%

Middle East
Oceania01990

1,000Asia

13.4 bil toe
8,00002000

201220202030

Oceania180.4%

2040

In order to meet such increase in demand for oil and natural gas, additional exploration forconventional resources and the development of unconventional resources, such as shale oiland gas, is very important. The Enhanced Development Scenario in this study assumes
significant progress in the development of unconventional resources worldwide. In thatanalysis, total unconventional crude oil production would reach 25 Mb/d by 2040,
compared to 6 Mb/d in the Reference Scenario. For natural gas, the production reaches
2.7 Tcm instead of 1.6 Tcm in the Reference Scenario. Such increases would relax any
tensions between the supply and demand of international oil and natural gas markets andwould lower prices. It would lower demand for Middle East oil in terms of international
trade1.

Coal consumption increases to 6,722 million ton of coal equivalent (Mtce, 1 Mtce = 0.7 Mtoe)
in the Reference Scenario by 2040 from in 2012 5,541 Mtce, increasing 1.2 times. Most of theincrement will be steam coal for power generation and others. In China, coking coal forsteel production is expected to peak out before 2040.

1

Refer to “Asia/World Energy Outlook 2013” in http://eneken.ieej.or.jp/en/whatsnew/413.html for more

information.

IEEJ: October 2014. All rights reserved.

Figure 2 Primary energy consumption (World and Asia: by energy source)
World
6000

Asia

Mtoe

29%

Fossil share
82%→79% (reference)
71% (Adv. Tech.)

5000

Oil

25%
24%
3000
28%

3000

29%

23%

2500

21%

19%

2000

17%
13%
10%

1500

Coal

Natural gas

2000

Otherrenewables

1000

11%

6%
3%
2%

5%

NuclearHydro 2%01990

2000

2012

2020

2030

41%

Fossil share
84%→81% (reference)
71% (Adv. Tech.)3500

31%
4000

4000

Mtoe

51%
32%
24%
24%
16%
16%
16%
11%
10%
6%

24%

1000

12%
500

10%
2%
2%

02040

1990

2000

2012

2%
2020

2030

2040

Solid lines: Reference Scenario
Dashed lines: Advanced Technologies Scenario
The percentages represent the shares in total global/Asian primary consumptionWind and solar photovoltaic (PV) power generation capacity will expand between now and2040 by 3.5 times and by 6.4 times, respectively. Capacities for wind would reach 996 GWand solar PV would be 622 GW. Wind and solar PV power generation would reach2,482 TWh by 2040 and represent 6% of total electricity generation. The generation fromrenewable energy including biomass, waste and geothermal power plants would reach 10%of the total electricity generation, and renewable power generation including hydro reaches
22%.

World nuclear power installed capacity will expand to 618 GW in 2040 from 389 GW in
2013. The amount of generation by 2040 is 4,451 TWh (11% of the total amount ofgeneration). The centre of the expansion of non-fossil energy generation comes from Asianemerging markets, including China and India.

By 2040, the Advanced Technologies Scenario expects that the maximum deployment ofenergy efficiency and low-carbon technologies would reduce world primary energy
consumption by 15%, and reduce Asia’s consumption by 16%, to 16,374 Mtoe and7,398 Mtoe, respectively. Significant reduction in coal consumption, especially in the power
generation sector is anticipated.

IEEJ: October 2014. All rights reserved.

2. Impact of low economic growth in China and India
Slower GDP growth in China and India would reduce demand and lower oil and gasexports from the Middle East and the former Soviet Union.
While Chinese economy continues to grow, the financial risk and other banking issues, thehousing and asset bubble problems, the deterioration of the environment, etc. also increase.
Such situation whispers, for the first time, that a low-growth scenario would be appropriate.
In India, as suggested by Prime Minister Narendra Damodardas Modi, the economy isexpected to grow rapidly. However, reform policies are not easy to introduce and thesuccess or failure of those policies is not yet clear, also suggesting a low growth scenario.

The Reference Scenario assumes average annual real GDP growth rate until 2040, of 5.4%
for China and 6.2% for India. The Low Growth Scenario assumed in this analysis is 3.9% and5.3% for China and for India, respectively. This Outlook also analyses the impact on energy
supply and demand assuming that China and India introduce structural reforms and move
forward towards energy efficiency improvement and low-carbon technologies (the Low
Growth and Reform Scenario).

In the Reference Scenario, China and India will increase energy consumption by more thanthe current total energy consumption for the United States and Japan (approximately2,600 Mtoe) by 2040. That is an enormous increase. The Low Growth and Reform Scenario
diminishes the growth in demand to 30% of the growth under the Reference Scenario. Thelargest decrease is with coal, but in terms of international energy supply and demand, theimpact on oil and natural gas is of larger significance.

The export region that would suffer the biggest impact by the decrease in consumption ofoil in China and India would be the Middle East. In the Low Growth and Reform Scenario,
the incremental net exports from the Middle East are 31% lower than the Reference
Scenario by the year 2040 (equivalent to 2.5 Mb/d). The exports from Latin America and theformer Soviet Union would also be heavily compressed. The Middle East would lose as
much as 6.9 Mb/d if the region plays as a swing producer and exports from other regions ofthe world do not change. By 2040, natural gas net import into China will be lower than in
the Reference Scenario by 45%, and imports into India would be lower by 38%. The formerSoviet Union and the Middle East would be the most affected by the lower demand.

If Russia’s relations with Western countries worsen while they are strengthen with China,
the impact of low growth will be larger. With the Low Growth and Reform Scenario, theformer Soviet Union and the Middle East would lose 30 percent of the anticipated increasein net exports.

IEEJ: October 2014. All rights reserved.

Figure 3 Crude oil net exports/imports in 2040
(Reference Scenario and Low Growth and Reform Scenario)

2040, EnhancedDevelopmentNet exports

Middle East

Low growth &reform, the Middle
East acts as a"swing producer"

FSU

Africa2040, Rerenece

Net imports

Latin America

2040, Low growth& reform
2012

ChinaIndia
0102030

Mb/d“Reform” is the key under low economic growth. Low growth and reform is beneficial
to energy security and global/local environment.
The unintended slow growth could lead to a further expansion of the gap between the poorand the rich, to environmental deterioration and the stagnation in energy-saving
technology developments. China’s reform of its economic structure from an investment
and exports-driven economy to a consumption-driven economy follows a path ofdevelopment quite different from the past economic growth-oriented principles. Under thesame low-growth rate assumptions, India’s future will also be different if it seeks thereform of its energy structure and commitment to a low carbon future. For both countries,
it is one of the desirable pictures of the future society to achieve a strong economic structureand secure employment through reforms, promoting energy-savings and low-carbontechnologies.

Low economic growth and reforms would reduce the increase in energy importdependency of China and India, and contribute to their energy security. This scenario also
contributes advantageously to the global and local environmental issues, relative to theReference Scenario. By 2040, carbon dioxide (CO2) emissions under the Low Growth

IEEJ: October 2014. All rights reserved.

Scenario are reduced by 3.2 Gt, from the Reference Scenario, and are reduced additionallyby 4.2 Gt under the Low Growth and Reform Scenario.
Reduced energy exports from the Middle East and the former Soviet Union would be mostsubject to the downside risks of a drop in GDP. On the other hand, the Low Growth andReform Scenario would relax the international energy market supply and demand,reducing the overall greenhouse gas (GHG) emissions. A relaxed supply and demand
could reduce energy prices to the benefit of energy consuming countries.

Figure 4 Energy related CO2 emissions in 2040
(Reference Scenario, Low Growth Scenario and Low Growth and Reform Scenario)

-3.2

15Gt

-4.2

105

ChinaIndia

0Reference

2012

LowLowgrowth growth&reform

2040
China & India

Reference20122040

Other Non-OECD

Reference

20122040

OECDIEEJ: October 2014. All rights reserved.

Figure 5 Crude oil and natural gas supply to China and India
Crude OilNatural gas

100%

100%

80%80%
Others60%

60%

Africa
40%

40%
FSU

20%

20%0%0%

2013

2040

China

2013

2040

Low growth& reform
Reference

Low growth& reform
Reference

Reference

Low growth& reform

Reference

Low growth& reform

Middle EastIndia
(domestic)
China(domestic)

2012 2040 2012 2040

India

China

India

3. Addressing the climate change issues
The difficulties to meet the 450 ppm targetIn the Reference Scenario, world energy-related CO2 emissions will reach 47.0 Gt by 2050,
an increase of 44% from the current levels. The Advanced Technologies Scenario, whichassumes the introduction of best energy, and low-carbon technologies combined withcarbon capture and storage (CCS), lowers emissions sharply from the Reference Scenario.
Emissions by 2050 would be 24.2 Gt, representing an increase of 14 percent above 1990 or a
26% reduction from 2012 levels. That is quite far from halving from the current levels.

The scenarios in which GHG concentrations in the atmosphere be limited to 450 ppm in
CO2 equivalent are considered to achieve a less than 2°C temperature rise from preindustrial level to 2100. To achieve such concentrations the wide spread and use of CCS
with bioenergy (BECCS) ,tree-planting and other measures in the second half of thiscentury would be required; those scenarios imply considerable uncertainty. It seems thatmeeting the 450 ppm target is very difficult, as the Advanced Technologies Scenario + CCS
is far from cutting by 50% the global CO2 emissions.

IEEJ: October 2014. All rights reserved.

The Intergovernmental Panel on Climate Change (IPCC) working group III contribution tothe 5th Assessment Report, was published in April 2014. The report does not limit thepossibility to meet the 2°C target only to the 450 ppm scenarios, with probability of morethan 50% of achieving the target with the 500 ppm scenarios. With appropriate adaptation
allowing up to 2.5°C, the rise could reach 550 ppm. The Advanced Technologies Scenario +CCS falls under the 550 ppm category with the comparison of CO2 emission pathways, andunder the 500 ppm category with the comparison of the cumulative CO2 emissions (20112050).

Figure 6 Global CO2 emissions pathways
605040

GtCO2

Range ofCancun pledges

ReferenceScenario
AdvancedTechnologies & CCS

302010550ppm category

0-10450ppm category-202000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Sources: IPCC, UNEP, The Emissions Gap Report 2013, etc.

500ppm category

IEEJ: October 2014. All rights reserved.

Figure 7 Cumulative CO2 emissions (2011-2050)
GtCO2
2000
1800
1600

Advanced Technologies & CCS
1,404 Gt

1400
1200

1000
800
600
400

Likely, more likely or about as likely as notto stay below 2C over the 21st century

200

Likely to staybelow 2.5C

0450ppm

500ppm500ppm,overshoot500ppm,no overshoot550ppmSource: IPCC AR5

Table 1 Categories in IPCC AR5-WG3Category label
GHG concentration in2100 (CO 2-eq)

Subcategories

450（430-480）

Temperature change (relative to 1850-1990)
Change in GHG
emissions fromLikelyhood of staying
2010 to 2050 2100 Temperature change below temerature level(℃)*(%)
over the 21st century-72〜-41

1.5〜1.7 （1.0〜2.8）

66～100%-57〜-421.7〜1.9 （1.2〜2.0）

50～100%-55〜-25

1.8〜2.0 （1.2〜3.3）

33～66%-49～-19

2.0～2.2 （1.4～3.6）

0～50%-16～+72.1～2.3 （1.4～3.6）

0～50%（580-650）-38〜+24

2.3〜2.6 （1.5〜4.2）

0～50%（650-720）-11〜+17

2.6〜2.9 （1.8〜4.5）

0～33%（720-1000）+18〜+54

3.1〜3.7 （2.1〜5.8）

0～33%（1000-）+52〜+95

4.1〜4.8 （2.8〜7.8）

0～33%

500
（480-530）550（530-580）

No overshoot of 530 ppm
CO2-eqOvershoot of 530 ppm
CO2-eqNo overshoot of 580 ppm
CO2-eqOvershoot of 580 ppm
CO2-eq* The range of temperature change in the parentheses includes the carbon cycle and climate system uncertainties

Source: IPCC AR5IEEJ: October 2014. All rights reserved.

The need to consider various strategies, including 500 or 550 ppm targets andadaptation
If we only pursue the 450 ppm scenarios, in which the achievement of bigger cuts than theAdvanced Technologies Scenario are required, far more difficult coordination among themajor economies in international negotiations would be expected. We must seek forpractical measures and strategies in future international negotiations, keeping in mind not
only the achievement of 450 ppm target, but also the retreating to 500 or 550 ppm targets.
In addition, adaptation measures should also be considered, as well as the development ofadvanced technologies, including carbon capture and utilisation (CCU), and space solar
power system, which would become very important from a longer perspective beyond 2050.

We should not stick to the 450 ppm target as the only realistic solution, but take into
account various options and strategies, considering the realistic limits to the CO2 emissions
reductions, costs of mitigation and adaptation, and the current situations of international
negotiations.

Figure 8 Relation of mitigation and adaptation costs
to the damage induced by climate change
Induceddamage(% of GDP)

Adaptation costs and damagefor 2℃ scenarios

Induceddamage(% of GDP)

Mitigation costs and damage

50.6
Induced damage
without adaptation

0.5

4.5

4
3.5

0.4

3
2.5

0.3

2.5℃・550ppm scenarios

20.2

1.5
10.1

2℃・450-550ppm scenarios

0.5

Costs of full adaptaiton

0000.20.4

Adaptation costs (% of GDP)

0.6

012345Mitigation costs (% of GDP)

Source: IPCC AR5Contact: report@tky.ieej.or.jp